The last-mile delivery challenge

Retailer investment in “last mile delivery” - the final leg of the online purchase journey before reaching the customer’s hands - is critical to uncover new revenue streams. The report finds that 3 in 4 customers would increase spend and be more willing to try new offerings in return for satisfactory grocery deliveries, yet just 1% of customers are willing to cover the full cost of delivery.

Key findings from the report include:

Automation and innovative services key to profitable last-mile delivery: Back-room automation could potentially increase profit margins by 14% by reducing the cost of click-and-collect orders and deliveries from the store. Additionally, half of customers are willing to use innovative services like smart locks where deliveries can be made to the kitchen when no one is at home.

Volume of online grocery orders is set to increase rapidly: 40% of customers already order groceries online from retailers (at least once a week or multiple times), and this is expected to grow to 55% by 2021.

Fast and effective last-mile delivery increases customer spend and loyalty: Encouragingly, 74% of satisfied customers intend to increase spend by as much as 12% with retailers they frequently purchase from. The majority (82%) of customers have shared positive experiences with friends and family, and just over half (53%) would even be willing to purchase a paid membership for a good delivery service. However, despite 55% of customers expressing that offering 2-hour deliveries would increase loyalty, only 19% of firms currently provide this, compared to 59% of firms that offer a delivery time frame of over 3 days.

Deliveries are the most expensive part of the supply chain: Last-mile delivery accounts for 41% of overall supply chain costs and it erodes profits because organizations charge only 80% of the overall delivery cost. 97% of retailers believe that current last-mile delivery models are not sustainable for full scale implementation across all locations. Plus, 99% of customers are unwilling to absorb the full cost of delivery. To be successful, retailers must find a balance between customers’ delivery aspirations and maintaining their own profitability.